June milk production up 0.5%
U.S. milk production is headed back up after a short-lived dip in May due to falling milk prices, a result of to the COVID pandemic and reduction programs mandated by milk handlers. Preliminary data in the latest Milk Production report showed June output at 18.3 billion pounds, up 0.5% from June 2019.
Milk output for the quarter totaled 55.9 billion pounds, up just 0.4% from 2019. Cow numbers averaged 9.36 million head, down 12,000 from first quarter, but 31,000 head more than the same period a year ago.
June output in the top 24 producing states hit 17.4 billion pounds, also up 0.5% from 2019. Revisions raised the original May 50-state total by 115 million pounds, now put at 18.96 billion, down just 0.5% from May 2019, instead of the originally reported 1.1% drop.
June cow numbers totaled 9.35 million head in the 50 states, down 10,000 from April but 23,000 above a year ago. May cow numbers were revised down 10,000 head. Output per cow averaged 1,958 pounds, up just 4 pounds from a year ago or 0.2%, likely due to production cutting measures by producers.
California output was up 1.0% from a year ago, thanks to a 25-pound gain per cow offsetting 4,000 fewer cows milked. Wisconsin production was down 35 million pounds, or 1.4%, on 11,000 fewer cows and a 10-pound drop per cow.
Idaho was up 3.5% on 23,000 more cows, though output per cow was off 5 pounds. Michigan was off 0.6%, on a 25-pound loss per cow but had 2,000 more cows than a year ago.
Minnesota was down 1.4% on a 5-pound loss per cow and 5,000 fewer cows. New Mexico, again with the biggest decrease, was down 6.2%, due to a 150-pound per cow plunge, though cow numbers were up 3,000.
New York was up 0.3% on a 10-pound gain per cow but had 1,000 fewer cows.
Oregon was unchanged with 1,000 more cows offsetting a 10-pound drop per cow. Pennsylvania was up 1.5% on a 55-pound gain per cow but cow numbers still lag, down 8,000 from a year ago.
Texas was up 4.4% on 25,000 more cows, though output per cow was unchanged. Washington state was down 1.1%, on a 20-pound drop per cow but cow numbers were unchanged.
GDT reverses, down 0.7%
Butter reversed the gears in Tuesday’s Global Dairy Trade auction, ending four sessions of gain. This week’s weighted average was down 0.7%, after jumping 8.3% on July 7, 1.9% on June 16, and 0.1% on June 2.
Butter fell 4.9%, after it gained 3.0% on July 7. Anhydrous milkfat was down 2.8%, following a 0.2% slippage. Skim milk powder was off 0.5%, after gaining 3.5%.
Whole milk powder was up 0.6%, after leading the gains in the last event, shooting up 14.0%, and GDT Cheddar was up 0.6%, following a 3.3% rise.
StoneX equated the GDT 80% butterfat butter price to $1.5636 per pound U.S., down 8.1 cents from the last event. CME butter closed Tuesday at $1.6625. GDT Cheddar cheese equated to $1.7248 per pound, up 1.8 cents, and compares to Tuesday’s CME block Cheddar at $2.66. GDT skim milk powder averaged $1.2154 per pound and whole milk powder averaged $1.4595. CME Grade A nonfat dry milk closed Tuesday at 99.25 cents per pound.
County fairs are being canceled across the country because of the COVID outbreak but the dairy industry is riding a COVID rollercoaster daily.
The block Cheddar price in particular spiraled down to $1 per pound on April 15, skyrocketed to a record high $3 on July 13, and then rode to a Friday close last week of $2.66 per pound, down 25.5 cents on the week, lowest since July 1, but still a hefty 88 cents above a year ago.
The barrels fared better, closing Friday at $2.43 per pound, up 9 cents on the week and 6 cents shy of the record barrel price on Sept. 22, 2014. It was 72.5 cents above a year ago but at a still too high 23 cents below the blocks.
Monday’s trading nudged the blocks a quarter-cent higher and then took it back Tuesday, settling at $2.66, as traders absorbed the morning’s GDT. Market traders will get a boatload of information this week, starting with Tuesday’s June Milk Production report, June Cold Storage report on Wednesday, and the June Slaughter report on Thursday.
The barrels were up 2 cents Monday and gained 1.5 cents Tuesday, hitting $2.4650, highest since Sept. 25, 2019, and reduced the spread to 19.5 cents.
The July 10 Dairy and Food Market Analyst (DFMA) reports that “the growth rate in retail natural cheese sales has declined in six out of the last seven weeks, according to IRI data ending June 28. Most recently, sales were up 13%, approximately half the growth rate from a month earlier. Retail sales of processed cheese were barely above year-ago levels in the week-ending June 28, up just 1.9%. If these growth rates hold for all of July, it will make available an additional 19 million pounds of cheese compared to June.”
Friday’s StoneX “Early Morning Update” stated that “government purchases continue to greatly affect the cheese market and are expected to linger into mid-August. Cold storage data will be very closely watched. We would expect to see a major draw down in stocks to justify $3.00, $2.80 and $2.71 block prices.”
USDA’s May dairy product commercial disappearance data was somewhat mixed, according to Nate Donnay, director of dairy market insight for StoneX. Speaking in the July 20 “Dairy Radio Now” broadcast, Donnay reported that, while total while cheese disappearance was down about 10% from a year ago in April, it was only down about 1% from a year ago in May.
“That’s a big improvement, driven primarily by the improvement in food service sales, as some states started to loosen their restrictions,” he said, “but it was still below year-ago levels.”
The brightest spot was butter, according to Donnay, where sales went from about 2% above year ago levels in April to a 17% increase in May.
But uncertainty abounds as we see restaurants reclosing and many going out of business because they can’t survive on the mandated lower capacities. Donnay said, “It’s difficult to translate directly between the headlined sales numbers, like food sales numbers being down 20% from a year ago to what that means for the amount of dairy that’s moving through foodservice.”
“We think that since the lockdowns started, foodservice meals have shifted to more dairy-heavy items,” Donnay reasoned. “Pizza sales at the major chains have been fantastic, the drive-thrus at quick service restaurants are still running strong and there’s a lot of cheese on those burgers and tacos so even though the headline numbers around foodservice sales are still running well below year ago, it’s very possible that the amount of cheese that’s moving through foodservice is doing much better, maybe only down something like 5% while total foodservice sales are down 20%.”
Midwestern cheese producers continue to report strong demand, according to Dairy Market News, but the rising prices has many buyers only taking “necessary loads.” Cheese output is strong as milk is available. However, high temperatures in the region have some expecting lower milk supplies ahead.
Spurred on by government purchases and the ongoing refill of foodservice pipelines, western cheese output is active, says DMN, with some manufacturers still running above design capacity. But DMN also warned that renewed social distancing requirements in parts of the West may dampen food service demand.
Some buyers even reported getting offers from international cheese sellers, looking to bring cheese to U.S. markets. But without major discounting, the buyers are hesitant to take on the risk, says DMN.
Cash butter appeared to be caught in the upward pull of the cheese market last Monday and Tuesday and advanced 5.5 cents but it was short-lived, reversing direction Wednesday, and closed Friday at $1.69 per pound, unchanged on the week, pausing five consecutive weeks of decline, but 70.75 cents below a year ago.
Monday’s butter was down a penny and then lost 1.75 cents Tuesday, no thanks to the GDT, falling to $1.6625, lowest CME price since May 29, 2020.
Butter fundamentals are weakening fast, according to the DFMA. “Retail sales growth is plummeting at that same time that sales at full-service restaurants are contracting, again. Butter prices are likely to continue declining,” the DFMA warned.
It was primarily the drop in restaurant sales that plunged dairy product prices in April and restaurant reopening that helped bring them back up but the DFMA, citing data from Blackbox Intelligence which tracks sales at chain restaurants, showed that “Limited-service brands are experiencing sales growth. The fastest growing segments are chicken, pizza (cheese-friendly), and burgers (also cheese-friendly),” according to the DFMA. “Sales have been above prior-year levels for nine consecutive weeks, just when block cheese rose from $1.2075 per pound to $2.6750.”
But many full-service restaurants are not reopening and data from Open Table shows that through the end of June, 12% of all chain restaurants were still closed, the DFMA reported.
Midwest butter plant managers reported that spot loads of cream were more available last week, according to DMN. Market analysts say butter prices are still somewhat range bound but expect $1.90 to $1.95 to be the high end of said range moving into fourth quarter.
Western butter production is active despite many loads of cream going to ice cream production.
Grade A nonfat dry milk close Friday at $1.00 per pound, down 1.5 cents on the week and 0.75 cents below a year ago.
The powder was down a penny Monday but inched back up a quarter-cent Tuesday, to 99.25 cents per pound.
Dry whey shot up 3 cents last Monday and closed Friday at 33.50 cents per pound, 4.75 cents higher on the week but a half-cent below a year ago.
The whey was unchanged Monday but gained a penny Tuesday, advancing to 34.50 cents per pound.